Section in Health-care law puts serious accounting strain on small businesses

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During the heat of the debate over heath care reform, House Speaker Nancy Pelosi famously told the American people, “we have to pass the bill so that you can find out what is in it.” It seems that small businesses are now doing just that, focusing in on a mandate that will raise business expenses and bury them in paperwork.

Beginning in 2012, Section 9006 of the Patient Protection and Affordable Care Act will require small businesses to submit Form 1099s for every business transaction over $600 for products and services. This includes everything from office supplies to shipping costs to cleaning services and the like.

The National Taxpayer Advocate reports that the provision will affect 40 million businesses, charities, and government agencies, including 26 million sole proprietorships.

There are currently dual bills with the same name –“Small Business Paperwork Mandate Elimination Act” — pending in the House and Senate which would repeal Section 9006, thereby eliminating the cumbersome mandate.

On the House side, California Republican Rep. Dan Lungren is sponsoring H.R. 5141 along with 125 co-sponsors, including 3 Democrats. On the Senate side, Nebraska Republican Mike Johanns is sponsoring S. 3578 along with 18 co-sponsors, all Republican.

“We have been trying from the very beginning to entice Democrats.” Lungren told The Daily Caller. My office personally talked to every Democrat office who voted against the health care bill and every single “Blue Dog” Democrat.

In an emailed statement to TheDC, Johanns said that he is working hard fighting for the interests of American small businesses.

“Small businesses are fired-up about the impractical, burdensome and unnecessary new paperwork mandate,” he said. “I spoke at a conference today where hundreds gathered in person and via the Internet to object to this and other anti-business provisions in the new health care law. These small businesses are already drowning in paperwork and forcing them each to file literally hundreds more 1099s is the last thing they need as they try to grow and hire workers.”

According to Johanns, small businesses currently have an average of ten Form 1099 filings a year. This new provision will push that average up to 200 filings annually, a 2,000 percent increase.

Bill Rys, tax council for the National Federation of Independent Business, told TheDC that the massive amounts of new paperwork will be an impediment to productivity. “In the midst of this debate of how we are remaking the health care system, we have this tax provision which has absolutely nothing to do with health care but is a huge new burden.”

He said that the IRS will be inundated with a tremendous amount of new paperwork.

“The question is how exactly the IRS is going to deal with all this enormous flood of new information and what exactly they are going to do with it,” he remarked.

Rys continued, “Talking about Senator Johanns and Congressman Lungren’s bill, it really is the only solution to solving this problem. We really need to be working on how to make the tax code more workable for small businesses and individuals and not add these new impediments…This is an attempt to close the tax gap, or the amount of money the government is owed but doesn’t collect and unfortunately the burden is going to fall on compliant taxpayers”

The Joint Committee on Taxation estimates that the provision will raise $17 billion over the next ten years.
Lungren calls the provision “The Universal Snitch Act.”

“It requires American business people to file 1099s on folks from whom they purchase something for whom they have no obligations to pay,” he said. “This is really a mechanism to ensure that payroll taxes are paid, it is nothing more than the government involuntarily enlisting every man and woman in American as an IRS agent.”

He continued, telling TheDC that Section 9006 will disproportionately affect small businesses: ”It will create disincentives for businesses to deal with small business. In other words if you want to minimize the number of 1099s you file, why would you go to your local hardware store? You would rather go to a chain so that you would only need to file a single 1099. This will discourage people from using their local small businesses. That is the double whammy on small business.”

Kristie Arslan, Executive Director of Legislative Offices for the National Organization for the Self-Employed, which represents America’s smallest businesses, including the self-employed and micro-businesses, concurred, telling TheDC that this mandate is going to hurt sole proprietorships. “According to our surveys about 40% of our members do their accounting or tax filing on their own. One of the biggest issues with this 1099 mandate is the burdensome amount of both tax complexity and paperwork placed on this size business,” she said.

Arslan also lamented that this provision will be a distraction from actual work. “What is worse is that all this paperwork pulls business owners away from what they should be doing in this economy, which is running their business,” she said.

According to the Small Business Administration, in the last 15 years small businesses have created 65% of new jobs.

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